The 4 Most Common Stop Loss Mistakes Traders Make
We always talk about how important it is to use stop losses and manage risk properly—but when stop losses are used the wrong way, they can do more harm than good.
Let’s break down the four biggest mistakes traders often make when setting stop losses:
1. Setting Stops Too Tight
Placing your stop loss too close to your entry is like squeezing into jeans two sizes too small—there’s no room to breathe!
If you place your stop too tight, normal market noise might stop you out before the trade has a chance to go your way.
Example:
You go long on GBP/JPY at 145.00 and set a super tight stop at 144.90.
Even if your analysis is correct and the price eventually shoots up to 147.00, it might dip 10–15 pips first and hit your stop loss.
Boom—you're out of the trade before the move even starts.
Lesson:
Always give your trades some breathing room based on the pair’s volatility. Don’t suffocate your trades!
2. Using Position Size or Dollar Amount to Set Stops
Basing your stop loss on “X number of pips” or “I only want to lose $50” rather than technical levels is a common rookie mistake.
Why?
Because your stop should be placed based on what the market is doing—not on a random number.
If your trade idea is based on technical analysis, your stop should be too.
The Right Way:
Decide your stop loss first based on support/resistance or other key levels.
Then calculate your position size so that the risk stays within your comfort zone.
3. Setting Stops Too Wide
Some traders go the other way and put stops way too far, hoping the market will eventually come back around.
But what’s the point of having a stop if you let your losses run wild?
Setting a super wide stop means your trade needs to move much farther in your favor just to break even, let alone make a decent profit.
Pro Tip:
Your stop should usually be closer to your entry than your profit target. That gives you a solid risk-to-reward ratio—like 2:1—so you’re aiming for more reward than risk.
Even if you’re only right half the time, you can still come out ahead with the right ratio.
4. Placing Stops Exactly on Support or Resistance
We’ve said it before: use technical analysis when setting stops.
But here’s the catch—don’t place your stop right on a support or resistance level.
Why?
Because price often tests those levels before bouncing. If your stop is placed directly on the level, you risk getting stopped out just before the trade moves in your favor.
What to Do Instead:
Place your stop a few pips beyond the support or resistance zone. That way, if price breaks through, you can safely assume the level failed and exit the trade with confidence.
Final Thoughts
To sum it up:
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Don’t strangle your trade with a tight stop.
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Don’t base stops on dollar amounts—use technical levels.
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Don’t set stops miles away and hope for the best.
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Don’t park your stop right on support or resistance—give it some buffer.
Set your stops smart, and you’ll be protecting your account while giving your trades the room they need to work.